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One year on: KORUS FTA looking good on the ROK side of the ledger sheet

This week will mark one year since the KORUS FTA signing. Far too soon for either side to go popping corks, but those popping off about the devastating damage it would do to the South Korean economy might want to look at the early trade numbers. It would seem Korea is doing fine.

From Yonhap:

According to government data, South Korea’s exports to the U.S. reached US$53.8 billion between March 2012 and January 2013, up 2.67 percent from a year earlier, while imports dropped 7.35 percent on-year to reach $39.1 billion over the cited period. South Korea enjoyed a trade surplus of $14.7 billion during the cited period, up 44 percent from a year earlier, the data showed.

I am no economist, but 44% is a decent gain, right?

Another Yonhap report said that U.S. imports from all countries rose 3 percent in January, while imports from Korea soared 18 percent. And, according to a Korean commerce official:

“Lowered tariffs allowed local firms to sell their products overseas at lower prices, raising the competitiveness of those companies.”

Go figure. Lower tariffs + good products + world’s richest market = competitive gains. Freaky.

This is not to say that sectors of the SK economy are not taking a hit. I haven’t seen the complete numbers, but American oranges are doing well –up 30% over last year on $150 million in sales– along with cherries jumping 80% to $80 million.

As for U.S. car imports, they have doubled this past year –though there is some debate as to what exactly the words “country of origin” mean. That will likely get more traction considering that the American-produced Toyota Camry was voted Korea’s Car of the Year by Korean journalists last month.

That aside, the South Korean auto industry looks to be benefiting quite well from the pact. (Though it should be noted, Americans have more money to spend than previous years.)

Vehicle exports to the U.S. gained 21 percent on-year to $10.22 billion over the cited period, while vehicle imports almost doubled to $720 million…Auto parts, among others, benefited most from the trade pact with exports to the U.S. rising 12.6 percent to $5.23 billion, according to the data.

On a side note, things are not going so well –or maybe they are– with the Korean-EU FTA, says Hankyoreh. They claim that the numbers out of Brussels and those out of Seoul are painting different pictures of who is getting the most out of their trade pact.

Happy KORUS FTA Day

If you’ve been watching the news, you know that the KORUS FTA went into effect today.

Or as some creative sort at Naver.com put it, “America’s Blitz On Korea Has Begun”:

Sadly, as the Chosun Ilbo pointed out, not all American products will be getting cheaper.

Oh, and just a note—while I appreciate the Kyunghyang’s arguments that some of the discourse about the Jeju naval base is probably unhelpful, I’m not going to hold my breath waiting for it to condemn rhetoric like this and this about the FTA.

Speaking of Marcus Noland…

At the Peterson Institute’s blog, Dr. Noland wades into the KORUS FTA controversy. Read the post on your own, but to quote his conclusion:

It would be foolhardy for the government of South Korea, a highly open medium-sized economy dependent on international trade, to abrogate a free trade agreement with the United States, the world’s largest economy. If nothing else it would destroy South Korea’s credibility with other prospective free trade partners, and could have spillovers into other aspects of the bilateral relationship with the US.

The obvious solution to this conundrum would be to implement the agreement, generate demonstrable benefits, and build public support. We may have roughly one year to do so.

And while we’re talking about the FTA, some clever netizen composed a Youtube video comparing the statements some of our favorite DUP and United Progressive Party politicians have made regarding the KORUS FTA over the years:

Go ahead, make my day.

Oh, look who’s got a set of balls now:

Opposition parties yesterday reignited the controversy over the Korea-U.S. free trade agreement, formally demanding U.S. President Barack Obama renegotiate some of the terms they consider unfair – with a threat to scrap it if they win December’s presidential election.

The largest opposition Democratic United Party and the Unified Progressive Party held a joint press conference yesterday afternoon and read out a letter to Obama demanding renegotiations.
[...]
“If we win the December presidential election and if our demands for renegotiations are not met by that time, the Korea-U.S. FTA will be terminated by Clause 2, Article 24.5 of the agreement,” the letter read.

For those keeping score at home, Clause 2, Article 24.5 reads: “This Agreement shall terminate 180 days after the date either Party notifies the other Party in writing that it wishes to terminate the Agreement.”

Now, this may be just cynical—albeit probably effective—electioneering on the DUP’s part, as Prof. Lee Dong-hwi of the Institute of Foreign Affairs and National Security told the Korea Times:

“(The DUP’s call) to scrap the deal after seizing power is not an easy task as it has already been ratified by both legislatures and is waiting to take effect. I cannot find any other reason (in the DUP’s move) besides politics to win the upcoming general election,” said professor Lee Dong-hwi from the Institute of Foreign Affairs and National Security, Wednesday.

“Secondly, (the DUP) should also consider the side effects that will be caused after scrapping the deal. It can seriously harm the Seoul-Washington alliance. If the DUP really put the idea into action, it will lower Korea’s credibility too,” added Lee.

If you’re of the pursuasion that America should pull its troops out of Korea yesterday, the sad part is Lee’s probably right—the DUP won’t really put this idea into action for a number of important reasons. Now, as a resident of Korea, the last thing I want or need is for this country to feel the full brunt of the American retaliation that would—or at least should—follow if the DUP scrapped the KORUS FTA. Still, one can fantasize:

This and that about the KORUS FTA

As you’ve no doubt heard, the US Congress has passed the KORUS FTA:

In an unusually speedy legislative process, both chambers of the U.S. Congress on Wednesday approved a free trade pact with Korea which will apparently help broaden the scope of the alliance.

The move is expected to give a jolt to an effort by Korea’s ruling party to ratify the accord within this month over resistance from liberal opposition parties.

The Senate’s 83-15 vote came on the eve of Korean President Lee Myung-bak’s summit with his American counterpart Barack Obama in Washington and a speech in a joint session of the Senate and the House. Lee arrived here Tuesday for a state visit.

The Obamanator is pretty pleased, or at least he seemed so in an exclusive interview he gave to the Dong-A Ilbo:

“In a nutshell, it is a win accord that can give benefits to both countries,” he said in a written interview with The Dong-A Ilbo Tuesday, the first day of South Korean President Lee Myung-bak’s state visit to Washington.
[...]
Turning to the advance of American companies into the South Korean market, he said the accord will give South Korean consumers a broader range of choices by allowing U.S. carmakers to easily sell their cars in South Korea. He added that American carmakers such as Ford and Chevrolet will also succeed in Korea should market barriers be removed.

We’ll see about that.

Visiting Washington, President Lee Myung-bak was also a happy camper:

“Ratification of the Korea-U.S. FTA is a victory of businessmen of the two countries and a historic event that opens a new horizon in relations between the two countries,” he said.

Lee also said the pact means the two countries have forged a strong “economic alliance” in addition to the 60 years of political and military alliance that date back to the 1950-53 Korean War, during which the U.S. fought alongside the South against invading troops from the communist North.

Lee also thinks the deal will help the United States better balance out China in the region:

In a wide-ranging interview at the president’s official residence, the Blue House, Lee called on the United States to increase its role in Asia, cooperating with China while also serving as a balance to China’s rise. During Lee’s four-day visit — his sixth trip to the U.S. as president — Congress is expected to ratify the U.S.-Korea free trade agreement, which was signed in 2007 but later renegotiated. That pact, which Korea also plans to ratify, “sends a powerful signal to the world” about U.S. engagement in Asia, Lee said.

The Chinese must be having a hell of a day. Oh, feel free to read why Goldman Sachs thinks the Chinese currency bill is insane.

Anyway, now the pressure is on Korea’s National Assembly. Don’t expect them to move very quickly on this, though:

Experts expect the swift action by the U.S. Congress in passing the deal could jolt South Korean lawmakers to put aside their differences and act quickly, observers said.

The outlook remains bleak, however, as lawmakers remain far apart on many issues. The opposition parties, in particular, have been pressing the government to renegotiate the deal as they claim the pact does not reflect a balance of interests, and to come up with more support measures for the agricultural sector and others.

“If we pass the bill without dealing with the issue of a balance of interests, it could help broaden the economic territory of the U.S. but cause the horrible consequence of us giving up our whole domestic market turf,” said Rep. Kim Jin-pyo, floor leader of the main opposition Democratic Party, on Thursday.

FTA with Korea “a joke,” Seoul doesn’t pay for protection: The Donald

Republican presidential frontrunner and everybody’s favorite Birther, Donald Trump doesn’t think much of the KORUS FTA… or the ROK-US alliance:

Under a President Trump, China would be forced to end currency manipulation or face a 25 percent tariff on all exports to the United States. OPEC oil-producing nations would have to drop the price of a barrel or oil to $40-50 or face America’s wrath. And Arab nations and South Korea would pay for benefiting from America’s military might.

He singled out the recent trade pact with South Korea, signed after a military showdown with communist-ruled North Korea, saying it was a “joke” with insufficient benefits for the United States.

“We go over there, we protect them, we protect them with our ships … Did anyone pay us for this? No! So, what is happening is mind-boggling.”

That South Korea doesn’t pay for its defense has been a theme of The Donald, even though the accusation is not entirely true.

Anyway, NRO’s John Derbyshire liked what The Donald had to say:

Hold up there a minute, Donald. You mean to say you’d conduct U.S. foreign policy in our own national interest? Not in the interests of foreigners? Now that’s radical!

If the Donald can have thoughts as radical as that, maybe he could even have a thought as radical as this: Since South Korea has a vigorous modern economy and a huge, well-trained, and well-equipped modern military, while North Korea has no economy and a military of half-starved peasants manning patched-up Soviet-era equipment, maybe the South Koreans should take care of their own national defense, and we should withdraw the thirty thousand troops we have stationed there.

Once you start to have subversive thoughts like that, others come thick and fast. If we don’t need those thirty thousand troops in South Korea, then, hey, maybe we don’t need the 36,000 we’ve got stationed in Japan, either. It may even be — you might want to sit down for this one, it’s way out radical — it may even be we don’t need to keep 52,000 troops stationed in Germany, or the ten thousand in Italy, or the nine thousand in Britain. It’s real nice for those countries to have us protecting them, but how is it good for us?

No deal on cars and beef: Yonhap

Yonhap reports that the United States and Korea have failed to reach an agreement on autos and beef.

The two sides will continue to talk during the course of the G20 summit, though.

Ford takes aim at the KORUS FTA

As the G20 Summit looms and negotiations between Korea and the Obama administration the KORUS FTA heat up, Ford has come out with guns blazing on their thoughts regarding the unratified agreement in full page ads in several U.S. newspapers.  Ford has also posted their views on their web site, which highlights a fairly simple graphic showing 52 Korean cars imported to the U.S. for every one car exported from the U.S.  Also included in their website are links to evidence they say show the many restrictions on U.S. auto exports to Korea.

Obviously, Korea has objections to Ford’s portrayal of the data.  Spokesman for both the Korean government and Korean auto manufacturers point out that foreign automakers have made strides in Korea as of late and that over half the cars made by Korean manufacturers sold in the U.S. are made in the U.S., facts that they say Ford omits.  Furthermore, the Korean embassy said that it is often not mentioned that GM owned Korea’s 4th largest auto manufacturer- Daewoo.

Speaking of GM, they have been rather silent on the KORUS FTA.  Many interpret this to mean that GM is “neutral.”  However, according to the Business Monitor International’s Automotive Insight, GM may have much to gain from the agreement.  Apparently, more of GM’s cars fit the revised emission requirements than cars made by Ford or Chrysler.

The key here has been emission requirements and tariffs on trucks.  In the FTA the Koreans have agreed to waive certain emission requirements and lower others.  The Koreans have offered to lower the other emission requirements by 10%.  It has been reported that the U.S. wants the emission requirements lowered to 25%.  It has also been reported that the U.S. wants Korea to adopt U.S. emission standards for their cars.  Also, it appears that the provision in the FTA to gradually reduce 25% tariffs on trucks imported to the U.S. be extended in perpetuity.  It was originally set to gradually disappear over 10 years.

In response to Ford, the libertarian think tank The Cato Institute has recently posted a number of articles in rebuttal:

The National  Association of [U.S.] Manufacturers runs a blog called ShopFloor, and appears to have taken a more middle ground viewpoint:

The National Association of Manufacturers has been a strong supporter of the KORUS [FTA] agreement, but has also always said that more was needed to address the auto industry’s concerns on market access in Korea. We are hopeful that agreement on this is near.

TMH guest blogger, Andy Jackson, has also written about the KORUS FTA recently.  Link to his article (published by Asia Sentinel) here.

European Union Approves Free Trade Agreement with Korea

After months of external and internal negotiation, the European Union has approved application of an FTA with South Korea. The major stumbling block has been Italy, which had the most concerns that primarily centered around inexpensive Korean autos on behalf of their car manufacturing company Fiat S.p.A. Any of the 27 members can veto an FTA. So, out of all the EU members, Italy was the last hold out for awhile. That was until a compromise was reached.

It appears that the compromise centered around delaying the effect of the FTA until July of 2011, which the rest of the EU is willing to give Italy and Fiat that amount of time to adjust. Here is an article that appears to highlight Italian fears of Korean cars.

The European Union Press lists 10 possible benefits of the FTA. At least the Scots seem happy. The 20% duty on Scottish whiskey will be phased out in three years (the gradual trot down starting after July 2011).

Battlelines Forming on the KORUS FTA

Old news, but back in the G-20 summit late last month in Toronto, President Obama assured President Lee Myung-bak he would overcome Congressional resistance to ratify the KORUS FTA by the next G-20 meeting held in November in Seoul.

Like the last full posting on the KORUS FTA, here are recent viewpoints that are for and against:

Against

For

109 Democratic Congressmen have sent Obama a letter stating their “concerns” on the KORUS FTA.  Late last year 88 Democrat and Republican Congressmen expressed support for the FTA.  Korean officials apparently say they will be willing to consider “creative” solutions” to the remaining issues.  Well, whatever the views are on either side and whatever Obama promised or told Lee in Toronto, it might be a dog fight in Congress.

Well, 2015 It Is… For Now

Looks like we’ll be delaying the transfer of wartime operational command to South Korea to 2015 [Chosun Ilbo, English]:

President Lee Myung-bak and his U.S. counterpart Barack Obama on Sunday agreed to postpone the transfer of full operational control of South Korean troops to Seoul until Dec. 1, 2015. The two met on the sidelines of the G20 summit in Toronto.

The transfer, which will mean dismantling the Combined Forces Command that would supervise the troops of both countries in wartime, was due to take place on April 17, 2012. The CFC is headed by the commander of the U.S. Forces Korea, with South Korean brass assisting.

The Roh Moo-hyun administration had agreed in 2007 to take back full control of Korean troops in 2012. But conservatives in both countries warned Seoul is not ready for the responsibility due to lack of hardware and training.

This is important, of course, since South Korea is the lynchpin of security in the Pacific:

In a press conference Obama said, “We have arrived at an agreement that the transition of operational control for alliance activities in the Korean Peninsula will take place in 2015. This gives us appropriate time to — within the existing security context — to do this right, because this alliance is the lynchpin of not only security for the Republic of Korea and the United States but also for the Pacific as a whole.”

Got it, chief.

The conservative JoongAng Ilbo, needless to say, is pleased:

The 2007 agreement on the transfer of wartime operational control from the United States to South Korea was the result of strained relations between the two governments. The agreement, which stipulates that the ROK-U.S. Combined Forces Command be dissolved after South Korea takes over wartime operational control from the U.S. on April 17, 2012, was devoid of mutual respect.

The Roh Moo-hyun administration approached the issue from a political perspective, stressing our defense capability and sovereignty, rather than from a military perspective. At first, the U.S. government regarded the proposal as premature. But after judging South Korea’s desire for military independence as part of the Roh administration’s policies, the U.S. quickly presented a counter proposal for an early transfer that would have changed the date from 2012 to 2009.

In the war of nerves, the top priority was when the transfer would take place. Little attention was given to important factors such as the pivotal preparedness of South Korean forces.

Focus is now on what the US will ask for in return, if anything. Perhaps not inconsequentially, Lee and Obama announced they would restart talks on the FTA with the aim of “adjusting” it to address US concerns regarding autos and beef [Yonhap, English]. This has the Hankyoreh smelling “US pressure” and quid pro quos:

The Cheong Wa Dae stressed that they would not renegotiate to correct the FTA itself, but rather would hold working-level talks to adjust the agreement. The general prediction, however, has been that it remains highly probable that in the end, they will boost the economic interests of the United States while making changes to the beef and auto industry issues. This is also a reversal of the government’s stance to date that there would be no changes whatsoever to the content of the agreement. Appearing before the National Assembly in November, Foreign Minister Yu Myung-hwan was asked by ruling Grand National Party (GNP) Lawmaker Nam Kyung-pil whether the government’s position was that it would not alter the text of the FTA agreement, but minute adjustments or additional agreement were possible. Yu responded by saying no.

On the other hand, in the event that the transfer of wartime operational control to South Korea is delayed three years and seven months from the original date of 2012, the economic burden the United States would have to endure is not great. From a military perspective as well, government officials have said that in the event that the transfer is pushed back to Dec. 1, 2015, the United States would not have to make changes to its global military strategy. Instead, there is concern that due to the delay, South Korea would grow weaker in the virtual renegotiation of the FTA and future talks on defense cost sharing, deploying South Korean troops overseas and weapons sales.

Well, if we’re going to delay the transfer, we’d better be getting something for it.

The KORUS FTA- Two Contrasting Views

I’ve always wanted to put two starkly contrasting views of the KORUS FTA together in one post and a recent editorial by the President of the UAW, Ron Gettelfinger, in the Detroit News allows me to do so.

Highlights of what Ron said:

Let’s say for the sake of argument that you are considering buying a Hyundai or Kia built in South Korea. Would you still purchase the vehicle if it meant that the government would audit your income tax forms?

[...]

Clearly something is out of whack here. How can Korea so effectively keep our products out, while we’ve seen more and more Hyundais and Kias on our roads?

Would you buy a foreign vehicle if you knew that insurance rates would be much higher simply because it was made in another country?…

[...]

Unless something is done about the unfair trade advantages — and done in a way that binds Korea to real fair trade — Korea still holds all the cards. You can reduce the taxes to nothing, but if Korea is still allowed to discriminate against U.S.-manufactured auto products with impunity, we’ll continue to bleed thousands of decent-paying jobs.

Okay.  So what about the other side?  Meet the folks at the Anniston Star Editorial Board.  Anniston, AL is of course a city 130 miles away from Montgomery, AL, home of Hyundai’s U.S. manufacturing facility.

This week, Mobile officials hosted the South Korean ambassador to the United States, Han Duk-soo, as part of his two-day visit to Alabama…. [Han's] message: South Korea needs its free-trade agreement to make it through Washington, and it needs help from Alabama’s delegation to make it so.

[...]

The American auto industry is no fan of the agreement; its political influence on trade agreements is immense. The South Korean ambassador will get no love from Detroit, or anywhere else with deep interests in the survival of American automakers. Thus, getting Congress and the president to finalize this concept may be difficult considering this fall’s vital mid-term elections.

[...]

Yet, the advantages for the state can’t be undersold. If ratified, the agreement would remove duties on seven of Alabama’s top 10 exported products to South Korea. According to its U.S. embassy, that nation already is the fifth largest importer of Alabama agricultural products. South Korean officials believe the agreement would instantly increase the market for Alabama-grown products…

That South Korean automakers Hyundai and Kia are sizeable parts of Alabama’s auto industry and would gain from duty-free port access in Mobile can’t be ignored, as well.

This is going to be a messy process.  But, hey that’s politics.  And it’s all politics at this point.

KORUS FTA Needs Work: Obama

The CEO of America’s largest car maker — who also doubles as POTUS — has told Korean President Lee Myung-bak that the KORUS FTA needs more work:

President Barack Obama said on Tuesday that auto, beef and other trade issues with South Korea must be resolved before he will ask Congress to vote on a two-year-old free trade agreement with the longtime ally.

“We want to make sure that we have … an agreement that I feel confident is good for the American people, that President Lee feels confident is good for the Korean people, before we start trying to time when we would present it,” Obama said at a press conference with South Korean President Lee Myung-bak.

It seems to me that President Lee already feels confident the deal is good for the Korean people, which is why he’s been asking for an early ratification of the agreement.

He paired South Korea’s concern about beef imports with U.S. concerns about the pact’s auto provisions, saying both were “understandable, legitimate issues for negotiation.”

Way to reward an ally for biting the bullet of last year’s candlelight protests there, sir.

The KORUS FTA Drifting Towards the Abyss

Interesting article from BusinessWeek highlighting the latest backpedaling by the Obama Administration on the FTA.

Net-net? It’s about cars. People in the administration believe Korea sells too many of them in the states and that Detroit doesn’t get to sell enough of them in Korea. However, according to the article, Korea has already done a lot to open up their car market, but most of the beneficiaries are German and Japanese companies. Importers have seen their sales in Korea rise from only 0.7% of the market in 2001 to about 6% in 2008. 90% of imported cars in Korea are German or Japanese. American cars just haven’t caught on.

Yet economists and industry officials in Seoul point out there’s no way any free-trade agreement could rectify the gap in the foreseeable future. “The only measure I can think of to stop the imbalance is imposing quotas, which are not allowed in a free-trade agreement,” says Lee Hang Koo, an auto specialist at the Korea Institute for Industrial Economics & Trade, a government-funded think tank in Seoul. “The Americans simply don’t offer attractive products.”

Furthermore, the FTA already address a eventual complete drop in import tariffs on American cars:

Under the terms of the free-trade deal forged by the Bush team, South Korea would remove its 8% tariff on all U.S. vehicles and parts immediately after legislators of the two countries approved the accord. To help address U.S. concerns about non-tariff barriers, Seoul also agreed to change its auto tax structure, which calls for higher rates for vehicles with larger engines. In return, the U.S. agreed to remove its 2.5% import tax for Korean cars with 3-liter or smaller engines, as well as for car parts. The tariff for cars with bigger engines would be removed over three years, while a 25% U.S. tariff for pickup trucks would be gradually phased out over 10 years.

Although this is the largest FTA the U.S. has negotiated since NAFTA, the present administration appears content to just see it die or face a very, very long postponement.

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